), apart from being a major online retailer of books, DVDs, music,
games, apparel, and other merchandise, also has a small business of
providing cloud and other web services. It offers web services like
cloud computing and cloud storage service offerings, in which it
competes with bigger players like Google (
), Microsoft (
) and Salesforce.com (
). Amazon also owns & operates websites such as Audible.com,
IMDB.com, and Shelfari.com.
Cloud and other web services together account for only around 3%
of Amazon's stock by our estimates. The company's revenues from
this business has grown at a steady rate over the years, and we
expect the growth to pick up driven by increased outsourcing of web
services and growing demand for online media and web 2.0.
While we expect Amazon's cloud and other web services revenues
will reach over $5 billion by the end of our forecast period,
Trefis members project the revenues will touch $6 billion. The
additional revenue of $1 billion (projected by Trefis members) will
not have a great impact on Amazon's stock because the contribution
of the cloud business to Amazon's overall stock value is limited
compared to the online retailing business.
We currently have a
Trefis price estimate of $181 for Amazon's stock
, about 7% above the current market price of $168.
Outsourcing is Cost-Effective for Web Businesses
Running IT infrastructure is a non-core activity for most
web-based businesses and is hardly a differentiating factor. As
such, cost becomes the primary determinant as to whether to run the
infrastructure in-house or have it outsourced. We believe Amazon
web services provide a very cost-effective way of providing those
services: there is no upfront fee, no long-term commitments, and
consumers pay based on usage.
Growth in Online Media, E-Commerce, Web 2.0 Driving
Increasing broadband penetration, more secure online payment
mechanisms, and social networking are all factors driving massive
growth both in terms of (1) new company platforms and services
going online; and (2) people spending more time online. This trend
increases the addressable opportunity for outsourcing to web
service providers like Amazon.
Trefis Community Forecast
Trefis members forecast Amazon's cloud and other web services
revenues will increase from $1.7 billion in 2011 to $6 billion by
the end of the Trefis forecast period, compared to the baseline
Trefis estimate of an increase from $1.4 billion to $5 billion
during the same period. Since cloud and other web services
constitute only around 3% of our price estimate for Amazon's stock,
we do not expect much impact from higher member estimates.
complete analysis for Amazon's stock